Friday, January 25, 2008

OT: Looks Like the Tax Rebates Are Going to Happen!

Leaders agreed only on the basics of the plan Thursday. Many details need to be worked out. Here's what it means to you:

Q: How much will people get?

A: Most individuals will get up to $600; couples will get up to $1,200. People will get an additional $300 for each dependent child.

Q: You said most. Who is eligible?

A: To get the maximum $600 or $1,200 payment, people must have paid federal income taxes in 2007 and had earned income of at least $3,000.

Those who made at least $3,000 but didn't pay any federal income tax would get $300 per individual or $600 per couple.

Q: Are there income limits?

A: Yes. The payments would start phasing out for individuals with adjusted gross incomes of more than $75,000 and couples with incomes of more than $150,000.

Individuals with incomes higher than $87,000 and couples with incomes higher than $174,000 would not be eligible, unless they had children. The caps would be slightly higher for people with children, but those figures weren't available Thursday.

A: Because they're technically going to be credits based on tax year 2008. The government doesn't want you to wait until 2009 to get this money, so it's issuing checks now.

Q: Since tax year 2008 just started, how will the government decide who is eligible, for income purposes?

A: The government will go by the returns filed this spring for tax year 2007.

Q: What if I have a baby in 2008, but I didn't have that dependent deduction in 2007?

A: You'll get your $300 as a credit on your tax return in spring 2009. The same would apply if you made too much money in 2007 to be eligible for the payments now, but made much less in 2008 and were therefore eligible. You'll be able to claim your credit next year.

Q: My child was under 17 last year, so I claimed him as a deduction. But he's not eligible for me to claim this year. Will I still get a payment?

A: You'll still get your money based on 2007 income and dependents. You won't have to give back money that was paid "by accident."

A: The check will be mailed to the address the IRS has on file. If your address has changed, you need to notify the IRS to make sure you get any check or correspondence, said spokesman Chris Kerns.

If your address changes after you file your return, or if you don't file a return and need to make sure the IRS has the correct address on file, then notify the post office that services your old address and complete Form 8822 (address change request.)

A: Either pay down any credit card debt or save it for an emergency, said Ken Robinson, a Cleveland certified financial planner. "Most people don't have nearly enough saved for a rainy day."

Spending the money freely wouldn't be smart for most people, agreed Brian Marita, a certified public accountant and partner with Ciuni & Panichi in Beachwood, Ohio.

"That's what got a lot of the people in these income brackets in this trouble in the first place."

Q: How likely are consumers to spend the money and help the economy?

A: Some will spend every penny and then some. Some will save it all. In 1975, people spent about 40 percent and saved the rest, according to the Federal Reserve. In 2001, people spent about 70 percent.

Q: What do businesses get out of this?

A: They'll get some tax breaks, too. Businesses will be able to immediately write off 50 percent of purchases of plants and other capital equipment.

Small businesses currently are able to take tax deductions on the first $125,000 they spend on new equipment, Marita said. That will be raised to $250,000.

In both cases, the deduction eligibility likely will apply to this calendar year and not be retroactive, Marita said, because the government wants to encourage spending.

Q: Since mortgages and foreclosures are a big part of the problem with the economy, how will homeowners be helped?

A: The stimulus package includes changes in mortgage lending, including a one-year increase in Freddie Mac's and Fannie Mae's conforming loan limits (from $417,000 to a maximum of $729,750), and a permanent increase in the FHA loan limit from $367,000 now up to a maximum of $729,750.

The law also is expected to include other changes to immediately help people facing foreclosure to refinance their loans.

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